For the quest not working try leaving the area, by that I mean go to broken valley or that other area, river town?, and then come right back in and try it.
I had a couple glitches on quests like that, and going out of the area and then back in fixed them.
Loading a saved game or even going to my battle tower did not fix them. Only leaving the area and coming back did, that knocks something loose.
Pattywackk you could have mind read him and used that info to have him give you the chalice for safe keeping as well. Works either way though as that sword is pretty worthless anyways, I carried it around the whole game in my backpack thinking it may hold some kind of significance later in the game but that never happened.
You can even find the shield to that sword in the same area that people are having trouble getting into in this thread. It's under the dragons claw on the floor if I remember correctly.
Nice piece of 500 year old rock hard bread in the corner as well.
I want to know what candles they use as well to last those hundreds of years.